What is the mathematical expression for spending multiplier

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Reference no: EM131213821

Consider a small open-economy country, with s = 0.25 and m5 =0.15. This country's economy is otherwise standard, but it has one unusual feature. When real GDP increases, the expanded sales to domestic buyers reduce the pursuit of export sales by domestic firms. That is, the export equation is X X(Y), and the "marginal propensity to export" (z) is 20.1, so that each $1 increase in real GDP causes a $0.10 decrease in exports.

Is the size of the spending multiplier for this small open economy larger, the same, or smaller (than the spending multiplier for a country that is the same except that it does not have this unusual export behavior)?

What is the mathematical expression for the spending multiplier for this country with the unusual export behavior?

Reference no: EM131213821

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